The deterioration in the UK's economy this year has been "more pronounced than even we expected", said the think tank, which also said Chancellor George Osborne has "scope for a less aggressive path of fiscal tightening" and should consider stepping up investment in key projects to boost growth.

The report said the Government's decision to implement austerity immediately after it came to power may have cost the country a total of 16.5% in GDP growth over a decade.

The Jubilee is believed to have reduced growth by 0.4%

"The scenarios suggest that the recession in 2012 could have been avoided had fiscal tightening measures been delayed," the report said.

"The concern today is that the Great Recession starting in 2008 and the consequent early fiscal tightening policies may lead to significant losses in output and a protracted period of high unemployment."

The report forecast world growth slowing to 3.3% this year and 3.7% in 2013, with unemployment in some countries rising to levels higher than those of the Great Depression of the 1930s.